Alexander Forbes is a leading provider of financial and risk services. The group strives to be an independent, fast-growing provider of these services, with niche dominance in selected business areas. Alexander Forbes is listed on the JSE Securities Exchange South Africa (JSE), and its primary operations are based in South Africa and the United Kingdom. The group’s clients include small, medium and large organisations, specialist groups and individuals.

The group’s main activities include risk services, financial services, and multimanager investments through Investment Solutions.

OVERVIEW OF THE YEAR TO 31 MARCH 2004

Due to currency and other factors detailed below, the group’s revenue of R4.4 billion and trading profit of R930 million for the year ended 31 March 2004 are down on the previous year. Headline earnings per share decreased by 7% to R1.51 per share. Excluding the non-trading currency gain and loss made in the current and previous years, headline earnings per share decreased by 15% in line with attributable earnings per share.

Core businesses remained profitable and continued to produce strong cash flows, and as a result the annual dividend was unchanged at 67 cents per share.

African operations
The African operations (primarily based in South Africa) increased trading profit by 6% to R574 million. The risk services (corporate insurance broking), personal services (personal lines insurance) and Guardrisk (cell captive insurance) businesses delivered a strong combined performance, with trading profit growing by 21% to R208 million. The core corporate insurance broking business showed modest revenue and profit growth, building on the strong results in prior years. Benefiting from the restructuring completed in the previous year and from improved underwriting results, the personal lines insurance business also showed strong profit growth. Guardrisk delivered another good performance.

The trading profit of the financial services business decreased by 10% to R188 million. The core actuarial consulting and administration businesses experienced good growth. However, their results were affected by: difficult market conditions, particularly currency issues in the individual financial planning business, reduced profit share in Alexander Forbes Life due to adverse claims experience, and a disappointing second-half performance by the Healthcare business. There were also some cost pressures within the business.

Investment Solutions increased its trading profit by 11% to R178 million. The business had significant net inflows of R5.7 billion, thanks to good client retention and new business gains. This increased assets under management to more than R64 billion at 31 March 2004. The business enjoyed meaningful success in the large fund market and with the StanLib joint venture assets were increased to R3.4 billion. The benefits of the multimanager investment approach were reconfirmed by another year of strong investment performance.

International operations
Trading profit of the international operations decreased by 31% to R356 million. Measured in base currency, trading profit decreased by 14% to £29.7 million, emphasising the impact of rand strength in the year to 31 March 2004. The weighted average rand/sterling conversion rate for Alexander Forbes’s international earnings depreciated by 21% compared to the previous year.

The UK risk services businesses had weaker results with trading profit decreasing by 17% to £14.8 million. The professional indemnity business benefited from good new business flows. The corporate risk solutions business recorded growth. Global (wholesale) broking services experienced lower than anticipated profits as a result of team movements, the impact of the weaker dollar on US$-denominated brokerage, as well as reduced business volumes and a change in the buying patterns for reinsurance in the London market. Interest earnings from insurance broking operations decreased because of lower interest rates and reduced cash holding periods.

Asia and Latin America contributed only modestly to total profits but are a source of referral business for the London brokerage operations and represent an important part of Alexander Forbes’s international network and profile. The results from these regions were down £0.6 million as a result of weaker currency conditions, the closure of the group’s Argentine office, and varying trading results across territories.

As far as the UK Financial Services are concerned, the Lane Clark & Peacock (LCP) and Independent Financial Advisory (IFA) businesses produced a good combined performance, with trading profit increasing by 25% to £6.9 million. LCP completed the acquisition of an actuarial business in Belgium during the year and continue to increase its profile in the United Kingdom. IFA’s trading profit increased by 50%. This business is widely recognised in the United Kingdom as a leading provider of services for insured defined benefit/defined contribution conversions.

The multimanager investment business experienced good new business gains, with assets under management increasing to £230 million at the end of April. The defined contribution administration business also attracted new clients and its assets under administration reached £6.9 billion. Both businesses have strong new business pipelines. The UK Investment Solutions business incurred a startup investment cost of £1.3 million in its first year as a result of initial delays in regulatory approvals and marketing activities. These have been resolved as reflected in recent new business gains.

THE FUTURE

The group continues to target growth in its international and African earnings, primarily through organic growth in the short term coupled with strategic acquisitions, particularly in the international arena over the medium term. The creation of value for shareholders remains a priority through earnings growth and through building on progress made regarding governance, international debt and empowerment during the past year.

The group remains committed to black economic empowerment and will continue to work closely with its empowerment shareholding consortium, headed by Cyril Ramaphosa of Millennium Consolidated Investments.